The Korean tax system is comprised
of both national and local taxes, the latter of which are imposed
by provinces, countries and municipalities. Examples of local
taxes include property tax, automobile tax, license tax and
registration tax. National taxes, on the other hand, are
currently made up of internet tax, custom duties, and education
tax, international tax, which consists of direct tax and indirect
tax, is thus the most significant type of tax payable in Korea.

Meanwhile, the 1990 tax reform was
undertaken to enhance the equity of the tax burden, to strengthen
the competitiveness of the manufacturing sector and to finance
education and local governments.

A joint-venture company established
in Korea with a Korean partner or a wholly-owned Korean
subsidiary, as well as Korean branch of a foreign company, are
treated as domestic corporations for Korean tax purposes.

Tax advice can be obtained from
certified public accountants, many of which have affiliation with
the "Big Eight" international accounting firms, or from
international law offices.

Taxation of Domestic Corporations

Corporation tax: A corporation
having its head office or its main ofice in Korea is liable to
the corporation tax. The corporation tax is assessed on the
income accruing in each business year, the liquidation income,
and the capital gains. The amount of corporation tax on the
income of a domestic corporation for each business year shall be
an amount calculated by applying tax rates to the amount of tax
base.

Revision of the Corporate Taxation
System

* An unlisted large-scale
corporation (paid-in capital of over five million won or
shareholders equity of 10 million won), which was accumulated 40%
or more of its distributable income within the corporation shall
be liable to pay the accumulated earnings tax at the rate of 25%.

* Tax incentives to promote R & D
- Increase of the deductible reserve for development of technology
and manpower from 1.5-2% to 3-4% of revenue.
- Operational expenses of an in-house technical collaege shall be
eligible for a 10% tax credit.

* Tax incentives for small &
medium-sized enterprises (SME)
- An SME investing in industrial equipment or advanced office
equipment may enjoy a 5% tax credit of the invested amount.
- The tax credit for developing technology and manpower shall be
increased from 10% to 15%.

* Introduction of the minimum tax system
- A taxpayer, even if tax incentives are granted, shall pay a
minimum amount. In the event of a corporation, this is 12% of tax base
before considering tax incentives or the tax amount reflecting such
incentives, whichever is larger.

Corporate tax return must generally be
filled within fifteen days from the date when a company's accounts are
finalized. Any taxes still owed at that time must be paid within filing
period for the company's tax return. Domestic corporations are also
required to publish a copy of their balance sheets in a local daily
newspaper within the same time period.

Inhabitant tax: Inhabitant tax is made up
of a universally applicable and fixed tax of 7.5% of the income tax
payable by a corporation, and a variable tax which is determined by the
location of the corporation. For cities with a population of five
million or more, the variable tax rate is 40,000 won, and
proportionately less for smaller cities. This is a local tax,
administered by provincial authorities.

Property acquisition tax: In the business
year in which a corporation acquires real estate, a motor vehicle,
heavy equipment or a vessel, property acquisition tax will be assessed.
This is a one-time tax assessed at the rate of 2% of the value of the
acquired article. However, in the case of the acquisition of articles
for business purposes in certain major cities, the rate is 10%.

Property Tax: Property tax is assessed
yearly by local tax authorities on the value of buildings, land, mining
rights, aircraft and vessels. The purpose of the property in question
will determine the tax rate applicable. For factories located in
certain geographic areas, tax is assessed at the rate of 0.6% of the
value of the land and buildings. Otherwise, commercial property is
taxed at the rate of 0.3% of the value of the land and buildings.

Registration tax: At the time of
officially registering the acquisition, transfer, creation or lapse of
certain property rights, a registration tax must be paid. The types of
property rights subject to this tax include real estate, vessels,
aircraft, corporations, branches, trade names, trademarks, copyrights,
patents and commercial permits. The tax is assessed on the value of the
property concerned, which is calculated on the basis of a list of
"Standard Values" prepared by the government. Where the
actual value is less than the standard Value, tax based on the Standard
Value will be imposed.

Value-added tax: Value-added tax (VAT) is
a tax imposed on the supply of goods or services or the import of goods
into Korea. The scope of VAT is vast, although there are many statutory
exemptions. The person who should bear this tax is the receiver of the
taxable goods or services. However, the responsibility for collecting
the tax lies with the supplier actually collects the tax from the
person receiving the goods or services. In the case of the importation
of goods or services, the person importing will be responsible for
payment of the tax and for the tax itself.

Payments of VAT collected by suppliers
must be made quarterly, together with a VAT return, which must be
filled within twenty-five days of the end of each fiscal quarter. The
present VAT rate is 10%. In calculating the VAT payable, the tax base
is exclusive of the tax.

Education tax: Education tax is levied as
a kind of surcharge on most national and local taxes.

Taxation of Foreign Corporations

A foreign corporation is liable to pay
corporation tax only on the income derived from sources within Korea.
However, no corporation tax is levied on the liquidation income of a
foreign corporation.

Corporation tax on income from domestic
sources of a foreign corporation is assessed and collected in the same
manner as that applied to a domestic corporation. With respect to the
income from domestic sources of a foreign corporation which has no
domestic place of business, the full amount of corporation tax withheld
thereon at source is payable to the government.

The provisions of tax laws with respect
to calculation of taxable income and tax amount, assessment, collection
tax withholding and reporting for domestic corporations are applicable
mutatis to foreign corporations having a domestic place of business.
However, any special provisions for foreign corporations are
preferentially applied thereto.

Taxation of Foreign Individuals

A non-resident is
liable for tax only in respect of income derived from sources within
Korea. Two kinds of taxing method, global taxation and separate
taxation, are applied in the case of a non-resident. With respect to
the non-resident who has a domestic business place and who has real
estate income (excluding the case of capital gains from transfering
land or building), the global taxation method is applied on the
aggregate domestic source income except for the retirement allowance,
capital gains and timberland income. The latter incomes of a
non-resident are taxed on the same basis as that applied to a resident.

With respect to the
income of a non-resident who does not have a domestic business place,
the withholding of taxation method is applied on each domestic source
of income. A non-resident is required to pay income tax at the domestic
business place. In the case of a non-resident who has no domestic
business place, income tax has to pay at the place where such income is
derived.